Why Cheap Oil Won't Stop Solar Power

Mainly, solar power is becoming really cheap relative to other sources.

I almost forgot about this one: many environmentally-conscious folks have become increasingly concerned that low oil prices may slow or even reverse the movement towards renewable sources of power--especially solar. Why change when gas has halved in price or more in less than a year? However, the reality is that the current phenomenon of cheap oil is actually a non-event in the inexorable march towards solar power. To this end, Bloombergidentifies seven reasons as to why this is so:

The Sun Doesn't Compete With Oil -
Oil is for cars; renewables are for electricity. The two don’t really compete. Oil is just too expensive to power the grid, even with prices well below $50 a barrel.

Electricity Prices Are Still Going Up
- The real threat to renewables isn’t cheap oil; it’s cheap electricity. In the U.S., abundant natural gas has made power production exceedingly inexpensive. So why are electricity bills still going up?
Fuel isn’t the only component of the electricity bill. Consumers also pay to get the electricity from power plant to home. In recent years, those costs have soared. Annual investments in the grid increased fourfold since 1980, to $27 billion in 2010, according to a report by Deutsche Bank analyst Vishal Shah. That’s driving bills higher and making rooftop solar attractive. [That is, power distribution instead of power generation costs are driving up power delivered via the grid.]

Solar Prices Are Still Going Down
- You may have seen this chart [above] before. It’s the most important chart. It shows the reason solar will soon dominate: It’s a technology, not a fuel. As time passes, the efficiency of solar power increases and prices fall. Michael Park, an analyst at Sanford C. Bernstein, has a term for the staggering price relationship between solar and fossil fuels: the Terrordome.
Case in point: Oil-rich Dubai just tripled its solar target for the year 2030, to 15 percent of the country’s total power capacity. Dubai’s government-owned utility this week awarded a $330 million contract for a solar plant that will sell some of the cheapest electricity in the world.

Sales of Plug-Ins Are Doing Just Fine, Actually
- Conventional wisdom says cheap oil is an existential threat to electric vehicles. It’s been true in the past, notably when Congress retreated from funding EV research in the 1980s as oil prices tanked. Things are different now, and global sales of plug-ins rose by about a third last year, according to BNEF.

Pump Prices Haven't Dropped as Much as Oil Prices
- They haven't changed at all in Malaysia, Indonesia, and Thailand.
There are a couple of interesting reasons why savings at the pump haven't kept pace with falling oil prices. First, a number of countries, including India and Indonesia, have used the price drop as cover to cut gasoline subsidies that were weighing down their budgets. Second, countries that include China have pocketed the savings from cheaper oil by increasing gasoline taxes to make up the difference[...]Fossil-fuel subsidies outpace renewable-energy subsidies by a factor of 6 to 1. Reducing the subsidy gap is one of the cheapest ways to increase fuel efficiency and speed up the switch to cleaner energy. Expect similar moves as the rising toll of climate change pushes governments to take action.

Oil Prices Won’t Stay This Low Forever
- The history of oil prices follows a golden rule: What goes down must come up. Goldman Sachs identified almost $1 trillion in investments in future oil projects that are no longer profitable with oil under $70 a barrel. American drillers are idling rigs faster than they have since 1991. Eventually, supply will shrink and prices will rise again.

Global Investment in Clean Energy Keeps Flowing
-
The biggest question for renewables and the oil plunge is: How much does perception shape reality? Shares of solar and wind companies have been pulled down with oil prices. Will this artificial drag bleed into direct investments in energy projects?
Not likely. There are too many forces pulling in the opposite direction. Global investment in clean energy increased 16 percent last year, to $310 billion, according to data compiled by BNEF. The U.S. and China, the world's biggest emitters, reached a historic deal in November to rein in greenhouse gases.

Related to the third point, global overproduction of solar panels should also drive their prices down further and improve the power bang for your buck